Hailo Raises $30.6 Million, Looks to Digitize New York’s Cabs

Late last year, the New York Taxi and Limousine Commission voted to approve a temporary new set of rules that would allow cabbies and riders to use electronic hailing apps to flag cabs and pay for them.

This is paving the way for a number of startups to start adding New York cabs to their e-hailing services. Among them is Hailo, a London-based startup that just raised $30.6 million from New York-based investment firm Union Square Ventures, among others.

Like Uber, a more well-known app in the United States, Hailo allows users to hail cabs with their smartphones — at least, once it gets the green light. But unlike Uber, Hailo operates as more of a social network for cab drivers, with the hailing service tacked on as an additional service.

“It’s like Foursquare, but for cabbies,” said CEO Jay Bregman.

Here’s how it works: Hailo connects cab drivers and helps them share information about where high-volume spots are popping up, what kind of traffic there is in the area, and so on. You’ll often find cab drivers on their phones today with other drivers doing the same thing. This just formalizes it as a service in app form and makes it more efficient, Bregman said.

Once the service hits a “critical mass” of a few thousand drivers, Hailo turns on the e-hailing component. The delay is to ensure there’s an “oversupply” or cabs on the market, so users aren’t frustrated when they try to hail a cab through the app. Hailo has tens of thousands of drivers registered, and cabs have carried more than 2.5 million passengers.

In a little more than a year, the company has racked up more than $100 million in sales. Hailo already has thousands of drivers in New York using it as a driver-only network, the company said.

Uber already has a similar service in San Francisco — and Hailo is already in other cities — meaning this could quickly turn into a shootout in New York once both companies get the green light. But Bregman said there’s plenty of room for more than one in the market.

That being said, it isn’t just limited to cabs. Bregman said the app is more along the lines of a digital way of connecting users to a physical service. The company plans to experiment with a few more types of services over the course of the year, he said.

“We think this is a kind of Trojan Horse to get people using a large network on their mobile phones to actually transact and get real stuff,” said Fred Wilson, managing partner at Union Square Ventures. “From there, I think lots of interesting things can happen. Alone in the taxi cab market, there’s a pretty big business to be built, and the fact that there’s potential beyond that gives us a lot of confidence.”

We caught up with Bregman to find out more. Here’s an edited transcript of the interview:

WSJ: Can you give us a little bit of background on who you are?

Jay Bregman: New York taxis spend up to half their time empty, cruising for fares. The same is true around the world. We were co-founded by three London black cab drivers, and they helped us see and discover the insight that’s fundamental to our success: everyone in this business look at the passenger first and drivers as an afterthought, but we discovered it was important to create a happy community of drivers and give them a suite of tools to make their days more sociable and more profitable. If you see cabbies in New York, they’re on the phone with other cabbies — this is basically the 21st century version of that.

When we get a critical mass, we launch to consumers, we make sure we have more cabbies than we need. We want to give cabbies 20% to 30% more business and create an experience that’s as quick as hailing off a street and a lot more convenient and reliable. In London, the co-founders go out and ask drivers how the system should be tweaked and go out and recruit drivers. They manage the drivers and make sure they’re educated, and now we have the same structure around the world. We have about ten other taxi drivers who work with us on a part-time basis out of Hell’s Kitchen in New York doing the same thing, for example. What they’ve done is created a network even in New York before we had the ability to connect them.

Right now, on 16th street, I’m about 2-3 minutes away from a Taxi driver running Hailo using it to receive information and updates — high-demand locations, and a wealth of other information. It’s Foursquare for taxis, and it works.

WSJ: When will this be live for passengers?

JB: We have about 5,000 drivers in New York that are fully verified taxi drivers that have the app, we’re just waiting in New York for the TLC to give us the green light to flip the switch. We’re gonna connect New Yorkers with thousands of yellow cabs. We’re ready to go, we have a licensing system in place, they passed the rules in December. We submitted an application last week and we’re currently waiting on some guidance.

WSJ: Just taxis?

JB: We view ourselves as currently a network for taxis, but really what we are is a very flexible smartphone-based utility for connecting consumers with products and services in the real world that help them take back control of their lives. Right now it’s taxis, but it could be other things in the future.

WSJ: Something like same-day delivery?

JB: I spent 8 years in the same-day delivery business. It’s a rough business, low margin and really tough to get right. The reason Hail came about is I didn’t like the network dynamics of the business. Because we are able to oversupply the network and provide drivers independent of consumer demand, we’re able to get around that — but we might not be able to in a same-day delivery market. I believe what’s really special about this business is the ability for us to put you in touch with an asset, service or product and have you pay seamlessly for us, and for us to take an existing marketplace and use smartphones providing just software to be more efficient. I don’t know what that’ll be, but the world’s a very inefficient place and I’m sure we’re not going to see a shortage of areas to go into. Over the course of the next year we’re gonna be rolling out other services.

WSJ: You guys also recently raised money, right?

JB: We raised a $3 million seed round with Atomico Ventures and some others, and we did a $17 million series A with Accel, which we closed in March 2012. We just closed a $30.6 million Series B led by the guys at Union Square Ventures and a few others. We have a fantastic operating executive out there that’s an expert in bringing western brands to the Japanese markets.

WSJ: Is this going to turn into a shootout with Uber?

JB: We are as big, or bigger, than Uber in their respective home cities. Most of Uber’s business comes from San Francisco. We’re doing over $100 million in run rate. London is an enormous scale, we’re in ten cities, six countries.

They were first to market and they have greater brand recognition, but that’s about to change. We just recently hired Tom Barr as our president and COO of Hailo USA, he was the head of coffee at Starbucks. For 12 years he worked to build that business from 1,700 stores to 16,000. A lot of people forget how that company grew so massively. We’d love to be the type of established brand with the kind of consistency and beauty of customer experience as Starbucks.

When it comes to the business strategy, we have been extremely focused — we have always gone with a licensed taxi market. We’re a hailing service, we don’t do black cars, we only do taxis, the higher-regulated, safer elements of the market. We do that because we provide value to those drivers to make their day more efficient by helping them optimize their days. The market we’re looking at for yellow taxis or black cabs in London is orders of magnitudes larger, it’s a true mass market. We charge a small fee to the driver and passenger, but nothing like what some of what our competitors charge.

That said, the final thing is really important, this is a market that’s probably a $30 billion to $40 billion, so there’s more than enough room for a couple billion-dollar companies.

WSJ: How do you make the experience better in New York?

JB: San Francisco is a great city, but it’s a relatively small city. London has 23,000. We’re used to dealing with New York-style and sophistication. We have over half of those 23,000 drivers registered on Hailo. We have thousands of drivers that are using the system in any given week, 6,000 plus. It’s an order of magnitude larger than any other city we’ve seen our competitors operating in. That’s what it takes to win in New York, you have to really create a service that is quick, that has that level of scale.

We have built a system in London where it’s 2 taps in 2 minutes to taxi, customers love it and drivers love it and it’s gonna work hew in New York as well. We’re layering on technology into drivers’ personal phones and on top of existing infrastructure. A company like Uber can’t just go and say, we’re gonna get 10,000 black car drivers in Manhattan. They have to pay every driver to be on and it’s phenomenally expensive. They can’t possibly oversupply the market like Hailo can. Our aim is to sign up every single one of New York’s 40,000 taxi drivers.